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Saturday, March 8, 2014

Do Pennies play an important factor in your financial success?

In our Malay language, there is a proverb which said "Sedikit-sedikit lama lama jadi Bukit". In literal translation, it means bit by bit and over time it will accumulate into a mountain. How true is that?

When I first started my dividend investing journey back in 2011, I remembered receiving very little dividend income from the stocks I owned. The first stock I've ever owned back then was SATS and ST Eng. Back then, the dividend was only in the range of $40-$80 and to add to the relatively small figure, I was only receiving them every quarter, not month. When the amount hits my bank account, it's usually gone by the very next minute I was spending on either clothes, food or even a simple cab fare back home. How am I supposed to build wealth off that small figure when cost of living here is so expensive I thought.

Despite the moment, I continued to stay loyal to my investing strategy. Days go by without much realization and before I know it, I was receiving more than couple hundred of dollars in dividend income hitting my bank account consistently every quarter. This was really nice I thought at that point in time. These are real monies that pops out in your bank account regularly that I don't have to work hard physically for, literally. And so I continued to carry out the very same strategy until today. Fast forward to today, my dividend income has surpassed a 5-digit figure and I am slowly but surely enjoying the power of compounding by itself.

The gateway to the top always start from the bottom. If you think the 5 or 10 cents you have in your drawer is worthless, then I can guarantee that you will never be able to attain the top. If these people are giving up on reasons that pennies dividends are not worth pursuing for, then they are missing the big part of the picture. Dividends do come to you in small amount, but they can add up rather quickly and the best thing about them is they are (almost) recurring to hitting your bank account on a quarterly or yearly basis without having you to work physically hard for them. If you have any friends or families or even find yourself familiar to such incidence, I hope my story is able to convince you to start investing or at the very least get interested on how to grow your money, the earlier the better.

To end with, I would like to share a story regarding the importance of pennies and how it can play a part in one's success.

"In a far off land, many years ago, there was a very poor man that went in front of a king of a very rich land and offered to work for the king for that day for just one penny and if the king liked his work the poor man would continue to work for the king every day after that first day for a total of thirty consecutive days.

The only contingency to this payment plan for the king was that for every day that went by, the king would have to double the poor man's previous day's wage from the first day's wage of one penny for thirty consecutive days.

After those thirty days, the king would then pay the poor man in full for his thirty days of labor. The king thought that he could get the poor man to do work for him without paying him much money!!!

What happened next was something of a shock to the king. At the end of the thirty days, the poor man made $5,368,709.12 a day and the king owed him $10,737,418.23 due in full at the end of the thirtieth day. The king was not aware of the importance of exponential factor of money doubling and the importance of every penny counts.

The story ends with the poor man becoming rich and the king becoming broke."

How do you see pennies in your savings? Do you think pennies play an important role in your success? How does the people today treat 5-cents differently from the people back in your era?

11 comments:

But I have a bone to pick on your story coming from a salesman myself. That's an example of hyperbole that we see in advertisements used by snake-oil salesmen (not that you are one; just poor choice of story).

That story you quoted is about EXPONENTIAL growth - it's more in the realm of 10 baggers and market manias.

I guess you were trying to explain the effects of LINEAR growth as in the compounding effect of money.

I hope CW can come and share more about the difference between compounding interest and returns - same same but different ;)

B has a 5 figure dividend because he has saved up more over the years and invested even more over the years. Increase in savings is important too when it comes to investing. 10k get small dividend, 100k get ok dividend, 1 Million get a lot of dividend!!

I may hv given quite a poor choice of the story but I get what you mean.

I was trying to say like what SGYI says. Sometimes we can have a huge IRR return but if the amount of capital is small your net value will not return much to your wealth. We have another side of people where they dont even try to save and invest for the return so they are lagging the most behind.

I guess I was bringing out the importance of both linear growth of savings which we can control and the exponential growth of investing which will take care by itself.

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